Wednesday, February 17, 2016

Absolute Software Corporation

Sound bite for Twitter and StockTwits is: Interesting and risky tech. It may not be the time to invest in this stock because at present Revenue and Cash Flow is declining. I would like to both pick up again before suggesting this is a buy. However, as the article on CanTech shows, others think differently. See my spreadsheet on Absolute Software Corporation .

I do not own this stock of Absolute Software Corporation (TSX-ABT, OTC-ALSWF). The Motley Fool published an article by Matt DiLallo in December 2014 called The 10 Best Stocks in Canada. It is basically a list of the best-performing Canadian stocks of the past decade. (You might have to go into this article a second time to get the full article.)

I decided to take a look at this stock since it paid dividends. Dividends just started in 2013. Although this company is reporting in US$, it is paying dividends in CDN$. Dividends are moderate to good and the increases the same. The current dividend yield is 5.25% and the 3 year median is 3.34%. Dividend growth over the past 3 year is 15.7%. This last dividend increase was in 2015 and was for 14.3%.

They can afford the dividends as far as cash flow goes, but not in connection with EPS. The Dividend Payout Ratio for 2016 for EPS is expected to be 172%. The DPR for 2015 for EPS was 270%. The DPR for CFPS for 2015 was 49.1%. See my blog for some discussion on Dividend Payout Ratios.

However, a notable thing about this company is the high cash and cash equivalents this company has. This is currently worth some 21.2% of the stock's value based on a current stock price of $6.10. There is $1.30 cash per share.

Both Revenue and Cash Flow has been increasing at a good rate, although Revenue has been slowing down. EPS just started to increase over the past 3 years. Revenue has grown by 8% and 25% over the past 5 and 10 years. Revenue for 2016 is expected to decline and this has not happened before. If you compare Revenue over the 12 months to the end of the second quarterly 2016 report and to the 12 month period to the end of June 2015 (annual statement date), it has declined by some 1.2%.

Cash Flow has grown at around 30% per year over the past 5 and 10 years. Cash Flow slowed down in 2015 and it is expected to decline in 2016. If you compare Cash Flow over the 12 months to the end of the second quarterly 2016 report and to the 12 month period to the end of June 2015 (annual statement date), it has declined by some 38%.

The most notable thing I see is that the book value is negative. The reason is basically deferred revenue. There is an article on Investopedia that deals with this item. The other notable item is that under Share Capital there is an item of Equity Reserve in connection with granting stock options to insiders.

The debt ratios are not very good. The Liquidity Ratio is 0.92. It means that current assets cannot cover current liabilities. The Debt Ratio is also low at 0.92. This is why the book value is negative.

I cannot do any stock price testing. EPS was negative until 2013. Median P/E Ratios was 131.28 in 2013, 74.24 in 2014 and 68.02 in 2015. They are currently at 24.49 based on a stock price of $6.10 and 2016 EPS estimate of $0.25 CDN$. A P/E Ratio of 24.49 is good for a Tech stock.

I cannot calculate a Graham Price as the Book Value is negative. You cannot do any stock price checking with the P/B Ratio as the Book Value is negative.

When I look at analysts' recommendations, I find Strong Buy and Buy recommendations. Most of the recommendations are a Buy and the consensus recommendations would be a Buy. The 12 month stock price target is $7.52. This implies a total return of 28.52% with 23.28% from capital gains and 5.25% from dividends. This assumes a current stock price $6.10.

Nick Waddell in an article on CanTech says that this stock is undervalued. Maddie Sorensen in a recent article on Financial Market News talks about insider buying at Absolute Software.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

On my other blog I wrote yesterday about Taxing the Rich. The next stock I will write about will be Emera Inc. (TSX-EMA, OTC-EMRAF)... learn more on Friday, February 19, 2016.

Absolute Software Corporation is the industry standard in persistent endpoint security and management for computers, laptops, tablets and smartphones. The Company, a leader in device security and management tracking for 20 years, has over 30,000 commercial customers worldwide. Its web site is here Absolute Software Corporation .

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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